“Sell in May and go away.” This was an
adage used for stock market investors when considering the timing of their
investments. With property the timing of
when to buy and sell is equally important and I have often said that you make
your money when you buy, not sell. It is essential to buy at the best possible
price to ensure that you have the greatest chance of a profitable return. You
could do a lot worse than spending the month of May on the Dolphin Coast, and
if the last week’s perfect weather is an indication, we can expect a blissful
month ahead. The first quarter has been particularly busy for our Seeff Ballito
office and has provided every indication of the signs of a recovery in the
residential property market. The overall consensus is that demand is up but
pricing down. More transactions are being concluded but at lower prices. Good
news for buyers but frustrating for sellers. The March consumer price inflation
(CPI) data was released by StatsSA and shows inflation remaining at 5,9%, just
below the SA Reserve Bank’s upper target limit of 6%. The residential rentals component of this CPI
is currently 4,7%, which is still low despite a strengthening residential
rentals market. The acute shortage of available rental stock along the Dolphin
Coast, which anybody who has been searching for a suitable rental property can
testify to, is the first building block required for a sustained recovery in
the buy-to-let market. Rental prices have been bid up to such an extent that
Simbithi rentals are now regarded as well above average and in many instances
higher than similar properties within Zimbali. Currently the overall buy-to-let
purchases are only 8% of total purchases, which remains relatively low,
considering that this figure was 25% in 2004. The Housing and Utilities CPI
component includes the electricity component, which remains high at 10,2%. The
national electricity price regulator of South Africa (NERSA) did not however
grant Eskom the requested price increases, which suggests that this inflation
rate can be expected to come down. The Water and Other Services CPI component
was also high at 9,2%. It has been these “administered” prices, including
municipal rates, which has driven up the cost of property ownership so
dramatically over the past few years. Rental rates can be expected to increase
and escalation clauses in new leases can be expected to default to 10% on
average. I think the days of your typical residential rental only escalating by
5% per annum may be limited and resisted by many Landlords.
With overall CPI inflation expected to
average 5,5% for 2013, the expectation is that interest rates will remain
unchanged for the duration of this year. One interesting item noted when
analyzing the breakdown of CPI inflation according to expenditure group, is
that the very low expenditure group has an official CPI inflation rate of 6,5%
while the very high expenditure group has a rate of 5,9%. Inflation can
therefore be seen as a regressive tax in that it impacts more negatively on the
poorer segment of the population. Transport CPI inflation is currently 7,5%. If
you thought your school fees were stubbornly high and growing you would be
correct – Education CPI inflation is currently 9%.
With the escalating cost of living being
such a harsh reality for all of us, investing to hedge against this becomes a
critically important decision. Buying an investment property in a high demand
area is one of the proven best ways to protect yourself.
(Author: Andreas Wassenaar, published 1st May 2013 in The Bugle)
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